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Friday, November 27, 2009

I apologize, but the closest I can come to describing the drama in the board room of the New York and Erie Railroad on that crisp November afternoon is to recall one of the concocted tribal councils on the “reality” television show “Survivor”. Now, because of the time compression, deleted conversations, subtle “background” music additions and the myriad of other minor manipulations that fall under the label of “editing”, the only common element between a modern day “Survivor” contestant and Mr. Jacob Little, the Antebellum Napoleon of the Board Room, was that over the span of just a few moments they both stood to win or lose a great fortune. And that has not been a reality for corporate managers in America for so long as to make it hard for modern readers to imagine it was ever true. It ain’t a real game if you are “too big to fail” because then, you can’t lose. And Jacob could.

Jacob Little was called “the original Wall Street Bull”. That was not quite true. The ancient traders, who bought hides from butchers, invented the ‘futures market’, by buying and selling the hides of cattle that had not yet been born. And if farmers thought the prices for hides were approaching the bottom they might hold onto more of their bulls, thus ensuring more cows for next season, when the prices might be better. So, those who expected prices were going up, were expecting a “bull market”. A bull in the stock market is a gambler, aggressive and willing to use his horns to get his way. And that is an apt description of Jacob Little.

Jacob’s contemporary, Henry Clews, claimed that Jacob “…made and lost” nine fortunes on Wall Street. And Matthew Smith, in his book “Sunshine and Shadow in New York” recorded a moment of introspection which Jacob experienced while walking past the mansions surrounding Union Square. “I have lost money enough today to buy this whole square. Yes, and half the people in it,” he said. And that was probably not an exaggeration.

At a time when railroads were the high tech, Jacob Little, tall and slim and “careless in his attire, wearing a hat like that of a farmer, and not a very prosperous one”, was known as the ‘Railway King’. He had realized there was far more money to be made in railroad stock than in running railroads. Between 1830 and 1855, when the nation quadrupled its miles of railroad track, 125 railroad companies issued stock but never laid a single mile of track. They sold preferred stock and common stock, and several varieties of bonds. And then there was the "futures’ market" in railroad stocks and bonds. There was even an ‘options’ market, which was the buying and selling of promises to buy or sell stocks in companies that might not even exist. This was the Wall Street version of the Wild West; have printing press, will fleece all suckers. And even those railroads that were real, suffered from endless manipulation.

Consider the profitable Norwich and Worchester Railroad in Massachusetts, whose largest stockholders signed a secret agreement to sell their Norwich stock only to each other. This created an artificial shortage of the stock, which drove the price up. The partners agreed to hold their shares until Norwich topped $90 a share. They would then dump the stock and leave the suckers owning a suddenly broke and worthless railroad; As the lawyer Tom Hagan explains in “The Godfather”, “Its just business, Sonny.” Just to keep all the crooks honest, any member of the “cartel” who sold below $90 a share pledged to pay a $25,000 fine to his fellow conspirators.

Jacob Little was one of the largest conspirators in the Norwich stock scam, but he was the smart one. As the stock began to rise, Jacob quietly offered to sell his fellows a portion of his stock at $89 a share. Well, perhaps offer is the wrong word. Because after Jacob had done this several times it dawned on the crafty New Englanders that they had to buy his stock in order to avoid a price collapse of their stock. And once Jacob had unloaded all his Norwich stock at $89 a share, he dutifully mailed a $25,000 check to his “partners”. By then he had profited several times that amount by shafting his partners exactly as they had planned on shafting the suckers. The partners let it be known that if the Bull of Wall Street showed his face in Boston again, they intended on claiming his ears.

It was maneuvers such as that which inspired a handful of the lesser wizards of Wall Street to plot Jacob’s demise. They were his fellow board members on the New York and Erie Railroad, and it seemed to them that Jacob was overextended. Besides owning a large chunk of Erie stock of course, Jacob had recently bought several thousand ‘options’ pledging to buy even more. When those options matured in six months, if the option holders demanded it, Jacob would have to deliver the stock at whatever the price.

Jacob was betting, of course, that the price would go down, and as a board member he had the power to help that happen. But the wizards decided to use Jacob’s genius against him. First, they quietly bought up all of Jacob’s options. And then, as the six months ran out, they began to buy every share of Erie stock they could find, bidding the price up 15 points above the price of Jacob’s options. And Jacob remained so blissfully unaware of the doom that was impending, he actually bought even more options.

The ultimate “Survivor” moment arrived on at the 2:00 p.m. meeting on Friday, November 16, 1855. It was the maturity date for Jacob’s options. Jacob was late arriving, and the meeting droned on until the board room clock struck 3:00 p.m. The market was closed for the day. It was no longer possible for Jacob to buy stock to meet his options. And in the best tribal council fashion, one by one the wizards presented their options to their cornered prey. The stack got very impressive. The Napoleon of the Board Room had been broken and broke right before their eyes. But just as Jeff Probst was about to say, “The next person voted off “Survivor”, Jacob Little pulled an immunity idol right out of his derrière.

Actually he pulled it out of London. Jacob was late to the board meeting because he had stopped in the Erie’s stock transfer room to convert Erie Railroad “convertible bonds”, bought weeks earlier on the London Stock Exchange, into Erie common stock. Such bonds are usually not worth the premium they sell for. If you are going to pay that much, you might as well buy the stock. But in this case the wizards had helpfully bid the price of Erie stock so high, they made the premium more than worth the price. And as Jacob fastidiously signed over each share required to fill the options, he was also diluting Erie Stock so that, come morning, the stock took a nose dive. The wizards had been so intent on cutting off the limb that Jacob had climbed out on, that they failed to notice they were on the same limb. And Jacob had even climbed down first.

Clearly somebody had leaked the plot, and, in retrospect that was inevitable. During his 12 years as an independent broker Jacob had built friendships and done favors for local bankers from San Francisco to New Orleans. Somebody was bound to warn Jacob about the brewing coup d’etat. But so brilliantly had Jacob gamed the system that generations of Wall Street bulls used his trick to transfer future fortunes into their bank accounts at the expense of future generations of suckers, until the rules were changed to require a convertible bond be held for at least sixty days before it could be transferred into common stock.

Most Wall Street fairy tails end the story here, with The Napoleon of the Board Room winning until he faded into history. But inevitably Jacob lost one more fortune than he made. He died broke on Sunday, March 28th, 1865. The Board of the New York Stock Exchange adjourned for the day to attend his funeral, but I can not say for certain whether they did this out of respect, or to confirm that Jacob was finally really dead. But I can say it has been the goal of Wall Street brokers ever since to rig the game so that they never run the risk of dying broke, ever again. And that makes it a very different game than the one that Jacob played.

Wednesday, November 25, 2009

I have always admired Alexander Hamilton. How could you not admire a man who could write, “A well adjusted person is one who makes the same mistake twice without getting nervous” That kind of self knowledge belies the life of a boy who was abandoned by his father at the age of ten, at twelve watched his mother die in the bed next to him, and was then adopted by a cousin who shortly thereafter committed suicide. Hamilton not only survived this horror show but within ten years became one of the most successful and powerful men in America, the man who invented the American economic system. But that childhood also goes a long way to explaining how such a smart man, a happily married man and a devoted father could fall for something as old and obvious as the Badger Game.

In 1791 in Philadelphia, twenty-three year old Maria Reynolds, a lovely and avaricious mental midget, approached Hamilton, who was the Secretary of the Treasury. She told Hamilton that her husband, James Reynolds, had abandoned her and their daughter. Could the noble and handsome Secretary Hamilton provide her with the funds to return to New York? Smitten and horny, with his wife living in far off Connecticut, Hamilton agreed to deliver $30 to her rooms that evening. Let the games began.

The original badger game involved sticking a live badger in a box and then sending in a terrier. After a few seconds the owner would pull the dog out. If the dog held the badger in its jaws, it was marked as a plus. Then the badger would be returned to the box and the dog would be sent in again. This was repeated several times in front of a crowd of Neanderthals, with the shouting and betting building to a crescendo. The similarity between the original sport (outlawed in England in 1835) and the blackmail sting performed on Hamilton is that the dog could be counted on to grab the badger every time, even though the pooch was never allowed to actually keep the badger. The same goes for the mark in the human game.

Shortly after Hamilton’s first liaison with Mrs. Reynolds, Mr. Reynolds made his re-appearance in the role of the wronged husband. He wrote Hamilton, “You have deprived me of every thing that’s near and dear to me. … You have made a whole family miserable.” James was a born conman who had been one of Hamilton’s commissariats during the revolution, scrounging food, clothing and ammunition for the Continental Army despite the penury of Congress. But he was also a wife beater – if we believe Maria. Although why we should do that I have no idea.

Eventually James got to the point. “…give me the sum of (a) thousand dollars and I will leave town and take my daughter with me…”. Hamilton paid, and James then wrote, “I have not the least objections to your calling (on my wife), as a friend to both of us”. The dog now had the scent and Hamilton continued to visit Maria and pay regularly – in April, $135, in May and June, $50, in August, $200.

The game went on for two years, with Hamilton enjoying the nubile Maria in Philadelphia, while urging his wife to stay in Connecticut. Hamilton even borrowed from friends in order to keep James silent. But the end of the game was predictable, given James’ character.

James Reynolds and his partner Jacob Clingman were arrested for cheating revolutionary war veterans out of their back pay, which Congress had been cheating them out of for years. Naturally James expected his “friend” Alexander Hamilton, Secretary of the Treasury, to rescue him. Hamilton, however, was not willing to use his official office to cover up his personal peccadilloes. He refused to help the crook. Angry, James started singing to anybody who would listen that Hamilton had given him inside information on Government bond sales. In particular Jacob Clingman sang to Hamilton’s arch enemy, Thomas Jefferson.

Jefferson thought it was Christmas. He gleefully dispatched Congressmen James Monroe and Fredrick Muhlenberg to confront Hamilton in person. And to their stunned surprise Hamilton admitted to the affair, but he denied everything else. He even provided proof in the form of letters between himself and both of the enterprising Reynolds’, James and Maria. Muhlenberg and Monroe were so nonplussed they agreed to keep the affair secret. Needless to say, Jefferson was not happy that Christmas had been canceled.

Hamilton resigned from Washington’s cabinet in January of 1795. But Jefferson had made no promise of secrecy, and he filed the information away for use at some opportune future moment, which came in 1797, which is how we know of the entire sordid tale.

Shortly after Jefferson leaked the entire story, the lovely Maria divorced her imprisoned husband James, and immediately married his partner in crime, Mr. Clingman. The newlyweds then moved to Alexandria, Virginia and dropped out of history. Her divorce attorney back in New York was Aaron Burr, who would in a very few years shoot Alexander Hamilton down in a duel. And that, one way or another, is the way most badger games end.

In contrast there was William A.E. Moore, a “friend” of President McKinley who appointed him U.S. Counsel to Durban, South Africa. Mr. Moore was in route to Durban with his wife, Fayne Strahan, when, while spending the night in Paris, he surprised the lovely Fayne “flagrante delecto” with a Russian nobleman. Mr. Moore offered to swallow his insulted pride for a mere $2,000, but the Russian chose instead to call the police. Mr. Moore’s diplomatic appointment was revoked and he was forced to return to the United States.

Then in 1898 the pair tried the same gag on Mr. Martin Mahon, proprietor of the New Amsterdam Hotel, in New York City. (a bit of a comedown this, from a Russian nobleman to a hotel owner.) This time, when William burst into the room he took the trouble to beat up the mark, poor Mr. Mahon, and steal $175 from his wallet. William then stuffed a cigar into Martin’s mouth and walked him up and down Fifth Avenue as if they were bosom buddies. Again, the mark went to the police and this time William Moore was sent to Sing Sing for several years. Fayne, meanwhile, went to South Dakota where she got a divorce. Some years later she moved to London where she took to the stage, as a chorus girl in the hit musical, “The Messenger Boy”. William was eventually released from jail and inherited $125,000 from an uncle. Last heard of he was living in luxury. And thus were the wages of sin for what today would be called “Gifters.

And in case you are thinking that these are dusty historical footnotes, a couple of years ago, in San Antonio, Texas, Ted Roberts, attorney at law, was convicted of three counts of theft for a badger scam he ran with his wife and fellow attorney, Mary Roberts. She was convicted of 5 counts of fraud. Mary trolled the internet looking for married men who were seeking sex. She engaged them in chat rooms until they either revealed their fantasies or actually met her for sex. There upon Ted would knock on the door and quietly inform the marks that he was going to sue them for “alienation of affection”, unless they agreed to “settle”.

The couple netted something around $160,000 from five marks before they were caught. Testifying for the defense past president of the Texas Bar Association, Broadus A. Spivey (No, seriously, that was his name), said that the badger game as played by the couple from law school was not illegal because it was not substantially different than a lawsuit. Under oath Broadus insisted, “Litigation is coercive.”

I leave the story there, in case there is anybody left in this nation who does not already despise lawyers.

Sunday, November 22, 2009

I can say without fear of contradiction that Abraham Lincoln was the most hated American politician in history. About one in four Americans spent four years trying to shoot him, for heaven’s sake.

“Honest Abe” was described by one contemporary magazine as a “Filthy story-teller, despot liar, thief, braggart, buffoon, usurper, monster, ignoramus, scoundrel, perjurer, robber, swindler, tyrant, field-butcher, (and) land pirate.” And a Chicago newspaper denounced one Lincoln speech by saying, “We did not conceive it possible that even Mr. Lincoln could produce a paper so slipshod, so loose-joined, so puerile, not alone in literary construction but in its ideas, its sentiments, its grasp. He has outdone himself.” Wow; well at least the paper deigned to call him “Mister Lincoln”. Of course, the criticism is softened somewhat when you realize the Chicago Times was reviewing Lincoln’s Gettysburg Address.

But then you come across the criticism of Mr. Lincoln offered by Mr. Peter Muggins, a private citizen from Ohio. He wrote the President the following letter: “G-damn you, and your G-damned old, hell fired, G-damned soul to hell. G-damn your G-damned families’ G-damned souls to hell. And G-damn your G-damned friends to hell.” After reading an outburst such as that what else is there to say except…everything?

It is easy to insult someone if you are willing to be reduced to vulgarity. The first recorded insult was carved on the walls of an Egyptian tomb 4,300 year ago, when one fisherman ordered a second, “Come over here, you copulater.” And it probably wasn’t original, even then.

Lincoln occasionally gave as good as he got, of course. He described one opponent as a man who could “…compress the most words into the smallest idea of any man I know.” But mostly, his wit was addressed to self depreciating humor. When accused of pandering to voters, Lincoln quickly replied, “If I were two faced, would I be wearing this one?” Compared to the horrible things others said about him, Lincoln’s venom toward himself couldn’t hold a candle.

General George McClellan, who spent almost two years in close contact with Mr. Lincoln, described him as “…nothing more than a well meaning baboon”, and “An offensive exhibition of boorishness and vulgarity.” Of course history has since judged McClellan to be one of the biggest horse’s behinds in history, so the source of the insult must have some bearing when judging the quality of the insult.

Because the issue here is not accuracy, nor political propriety or even civility; it is wit, to wit “The natural ability to perceive and understand – intelligence; keenness and quickness of perception or discernment; ingenuity, as in to live by one’s wits; the ability to perceive and express in an ingeniously humorous manner”; to wit:

In my subjective search for the wittiest political insult I have been disappointed by most modern commentators on George W. Bush, for various reasons. Most fall victim, as Ron Reagan Jr. did when he asked of our former President before he was our President, “What is his accomplishment? That he’s no longer an obnoxious drunk?” Mr. Reagan gets points for bitterness and perhaps accuracy (he did know the younger Bush personally) but I must correspond with the adage that “He who has never been an obnoxious drunk at least once in his life, has not lived”. And the missing element in Mr. Reagan’s observation is that elusive quality of “wit”.

I have eliminated most professional commentators from my search because they have staffs who daily submit attempts at wit, which are then weeded through for prize examples, to wit: Jay Leno on Bush being caught by a microphone using an obscenity at an international conference, “It’s not a big deal, President Bush using a four-letter word. Now if Bush used a four-syllable word…that would be unbelievable”; or David Letterman on the results of a poll; “One percent of Americans participating in this poll believe Dick Cheney is the best Vice President ever. Everybody else in the poll believes that one percent should be wearing funny hats”.

The same commentators are eliminated from contention as regards political insults in general, and for the same reason. To wit, Letterman’s riff on one of his favorite targets, Senator John McCain; “He looks like the guy who’s backed over his own mailbox. He looks like the guy at the supermarket who is confused by the automatic doors. He looks like the guy at the movies whose wife has to repeat everything”, and Stephen Colbert on the same subject, to wit: “John McCain may be behind, but the man is a fighter. He doesn’t know the meaning of the word quit. He used to, but it was stored in the same part of his brain that remembered to vet his running mate.”

So I have broadened my search to the world stage but limited it to actual politicians, and for a time I had hopes I had found a choice subject in that indomitable woman, Prime Minister Margaret Thatcher, known to her fellow politicians as “Attila the Hen” (Clement Freud), “Petain in petticoats” and “La Pasionaria of middle-class privilege” (Denis Healey), “The Immaculate Misconception (Norman St. John-Stevas) or simply “Virago Intacta” (various sources.)

Ms. Thatcher was described by Lord St. John of Fawsley this way: “When she speaks without thinking, she says what she thinks”. Clive James described her speeches as sounding, “…like the book of Revelations read out over a railway station public address system by a headmistress of a certain age wearing calico knickers.” Johnathan Aiken questioned her grasp of international events. “She probably thinks Sinai is the plural of sinus”. And Denis Healey compared her rages to “…charging about like a bargain basement Boadicea.”

The depths were surely plumbed however when Tony Banks accused her of behaving “…with all the sensitivity of a sex-starved boa-constrictor.” In fact the only drawback to Ms. Thatcher as a contender in my search is that she was not as good a wit as the wits she inspired.

The reverse was true of the prince of the British political witticism, legendary Prime Minister Winston Churchill, not for the way he was described but for the way he described others. He spoke of the man elected to replace him in 1946 this way; “An empty taxi arrived at 10 Downing Street, and when the door was opened, (Clement) Atlee got out. He is a modest man who has much to be modest about”. Of another opponent Churchill said, “I wish Stanley Baldwin no ill, but it would have been better if he had never been born. He once stumbled over the truth, but hasty picked himself up and hurried on as if nothing had happened.”

Winston described his predecessor, Neville Chamberlain, as looking at foreign affairs “…through the wrong end of a municipal drainpipe.” And he observed that “Harold Wilson is going around the country, stirring up apathy.” And at the award ceremony where Lord Mountbatten was promoted and presented with a medal for bravery after his destroyer was sunk in the Mediterranean, “What could you hope to achieve except to be sunk in a bigger and more expensive ship next time?”

An ever dutiful socialite, Churchill once bumped into his hostess, Bessie Braddock, at a party. He excused himself, but Ms. Braddock scolded, “Winston, you’re drunk!” To which Winston replied, “Bessie, you’re ugly. And tomorrow I shall be sober.” At another party Lady Astor told him, “Winston, if you were my husband I would flavor your coffee with poison” Churchill told her, “Madam, if I were your husband, I should drink it.”

But Churchill’s best rejoinder may be apocryphal. While he was sitting on the toilet an aide supposedly knocked on the door to remind him that the Lord of the Privy Seal wanted to speak with him. Now, the Lord of the Privy Sea is not a Lord, is privy to nothing, and holds no seal. He is an advisor to the Prime Minister without a cabinet position, and so a person with no real power. This may explain why Churchill responded to the interruption as he supposedly did. Through the closed bathroom door he told the aide to, “Tell the Lord Privy Seal that I am sealed in my privy, and can only deal with one s—t at a time.” The story may be myth, but it is clear that Winston stood head and shoulders above his contending wits while on the attack.

The Brits have an advantage in political wit-ery because of the weekly “Question Time” which forces their Prime Ministers to submit to cross examination directly from their opponents in full public view, requiring both sides of the aisle to live by their wits. This has given rise to such lifelong political duels as the one-sided war between Benjamin Disraeli, who called his great adversary, William Gladstone , “…essentially a prig…All the prigs spoke of him as the coming man”. Disraeli noted that “If Gladstone fell into the Thames, that would be a misfortune. And if anybody pulled him out, that, I suppose, would be a calamity”.

And the best that Gladstone could respond with was to complain that he lost an election because, “We have been borne down in a torrent of gin and beer”. I guess Gladstone was a prig, after all. It’s no wonder then that Queen Victoria complained that Gladstone, in private conversation with her, always spoke to her as if she were a public meeting.

The only nation that comes close to the erudite viciousness of the English is the Australians, and they place heavy emphises on the visciousness. And the Australian one-man Olympic insult team – one time Labor Party Prime Minister, the right honorable Paul Keating, who once said that most politicians have brains like a sparrow’s nests - “all s—t and sticks”. Clearly he meant to exempt himself.

It was Keating who described an opposition member as “..a shiver waiting for a spine”, and labeled another as “a desiccated coconut”, “…a lizard on a rock, alive but looking dead.”, and “…the brain damaged Leader of the opposition.” Keating described listening to a speech by John Hewson as similar to “…being flogged with a warm lettuce” and Andrew Peacock as “…an intellectual rust bucket.” And when Peacock repeated an old charge against Keating, the P.M. described the attack as “A dog returning to his vomit.” Keating even described one opponent as “All tip and no iceberg”, and a “pre-Copernican obscurantist”, whatever that is.

But best of all of Paul Keating’s insults is, in my opinion, his comparison of Malcom Fraser to “…an Easter Island statue with an arse full of razor blades.” Ouch.

Yes, the world is filled with political insults that display wit, verve and élan, as when one British M.P. called another “..a semi-house trained polecat.”, or when Loyld George described Neville Chamberlin as “A retail mind in a wholesale business.”. An Italian politician described Prime Minster Silvio Berlusconi as clinging to data “…the way a drunkard clings to a lampposts, not for illumination but to keep him standing up”. Sam Huston said that Thomas Jefferson processed “…all the characteristics of a dog, except loyalty.” And when told that Dan Quayle had announced his intention to become George H.. Bush’s “Pit Bull”, Bill Clinton observed that Quail must have “…every fire hydrant in America worried.”

The supreme American professional political wit (although he never ran for office) was and always will be H. L. Mencken, the man who described democracy as "...the pathetic belief in the collective wisdom of individual ignorance.” It was Mencken who said that if Franklyn Roosevelt became convinced that supporting cannibalism would help him win an election “he would be fattening a missionary in the White House backyard come Wednesday.”

When describing President Warren G. Harding, Mencken wrote, “He writes the worst English that I have ever encountered. It reminds me of a string of wet sponges; it reminds me of tattered washing on the line; it reminds me of stale bean soup, of college yells, of dogs barking idiotically through endless nights. It is so bad that a sort of grandeur creeps into it. It drags itself out of the dark abysm pish and crawls insanely up the topmost pinnacle of posh. It is flap and doodle. It is balder and dash.”

It was Mencken who said that “A good politician is quite as unthinkable as an honest burglar”. But Mencken hit his stride when he stooped to describe Calvin Coolidge. “He slept more than any other president, whether by day or night. Nero fiddled, but Coolidge only snored.”

But did Coolidge inspire Mencken to deliver the deftest, wittiest political insult in history? I fear not. Nor was it delivered by Dorothy Parker, the fem-fatalist writer and razor wit, who, on being told that Coolidge was dead, immediately asked, “How can they tell?”

Nor was it the old Frenchman Georges Clemenceau, who sat through a bombastic speech by British Prime Minster Lloyd George, even though Clemenceau understood not a word of English. At the end of the speech the septuagenarian Frenchman shook his head in awe and whispered to an aide, “Oh, if I could only piss the way he speaks”; point taken. But still it falls short.

No, I believe the best, most accurate, most vicious witticism ever uttered by any politician sprang from the lips of Bob Dole, Republican workhorse and American Presidential candidate. Well before his own failed Presidential campaign, Dole attended a 1980 White House reception for former Presidents Jimmy Carter, Gerald Ford and Richard Nixon, before they flew off to attend Anwar Sadat's funeral. Looking over the White House's Blue Room crowded with ex-Presidents, Dole was heard to comment, “There they are. See no evil, hear no evil and…evil.”

Accurate, biting, funny and inventive; and the very definition of wit.